Demo vs. Live Trading Accounts
Demo accounts are a great way to get your feet wet in trading. If you’re a beginner, you should start trading on a demo account to get used to your trading platform, different market orders, and market dynamics. To get more news about
forex demo and real accounts, you can visit wikifx.com official website.
However, semi-experienced traders will likely be better off trading with a micro account as demo trading fails to provide an accurate picture of real trading. Micro accounts can be opened with as low as $100.
What’s a Demo Account?
A demo account provides a realistic trading environment without risking real money. When you open a demo account with a Forex broker, you’ll receive virtual money which can be used to demo-trade, practice your trading skills, get familiar with the broker’s trading platform and get a first-time experience of the dynamic world of financial markets.
If you’re a total beginner in trading, it’s strongly recommended to start with a demo account first to get used to the different types of market orders, timeframes, the impact of news on exchange rates and all the functionalities of your trading platform. Almost all brokers offer demo accounts nowadays that help traders get their feet wet in Forex trading in a risk-free environment.
Demo accounts usually come with $10,000 or $100,000 of virtual money which can be used to explore the Forex market without any fear of losing real money. However, this is also one of the main disadvantages of demo accounts, as traders don’t have any emotional commitment to their demo-funds.
Psychological Effects of Demo Trading
Besides differences in order execution and price-feeds, demo accounts also have a psychological effect on traders since they know that they’re not risking real money in the market. This makes it quite hard to observe emotions that are usually present when trading on real accounts.
Traders often feel fear and greed on real accounts, which are emotions that are not triggered on demo accounts. Overtrading is also something that demo traders often do. While there’s no risk involved when overtrading a demo account, it can become quite dangerous on a real account.
Don’t Stay Too Long on a Demo Account!
A common mistake of beginners in the market is to stay too long on a demo account. When demo trading, a trader doesn’t have a real emotional connection with his funds. Bad trading decisions won’t trigger the same emotional response such as losing trade on a real account, and the absence of any real consequences makes it harder to understand the importance of sound risk management.
That’s the reason why you shouldn’t stick to demo trading for a long period of time. After you’ve got a feeling for the market and learned the ins and outs of your trading platform, it’s time to open a real account and start risking real money. Depending on your learning curve, this can take anything between a few weeks to a few months.
Most brokers offer so-called micro accounts which can be opened with as low as $100. Trading with $100 will help you more in becoming a successful trader than demo trading with $100,000.
Final Words
Demo accounts offer a risk-free trading environment where traders can trade with virtual money. Beginners who are interested in the world of online Forex trading should always start with a demo account to get familiar with their trading platform and the basics of trading. However, demo accounts don’t come with the same execution lags you can find on a real account. Re-quotes and slippage are non-existent on demo accounts but often happen on real accounts.
What’s more, demo accounts don’t provide the same emotional commitment and don’t have any negative consequences when placing a bad trade. This makes demo accounts inferior to real accounts when it comes to practicing emotional control and creating sound risk management principles. If you’re already a demo trader, consider opening a real micro account with a small deposit. Always risk a small amount of your trading account on every single trade and observe your emotions when a trade becomes a winner or a loser.
Remember, when you’re just starting out with trading, it’s not about making money but about forming healthy trading habits with strong risk management rules. Also, only deposit money that you can afford to lose when opening a real account.
